StanChart IDRs tumble as new SEBI rules hit arbitrage game

Standard Chartered bank’s IDRs that listed on the stock exchanges on June 11 last year plunged on Monday as speculators went on a selling spree following a decision by Sebi on redemptions that would affect their arbitrage gains.

Standard Chartered bank’s Indian depository receipts (IDRs) that listed on the stock exchanges on June 11 last year plunged on Monday as speculators went on a selling spree following a decision by the Securities and Exchange Board of India on redemptions that would affect their arbitrage gains.

“It has been decided, in consultation with the RBI, that after the completion of one year from the date of issuance of IDRs, redemption of the IDR shall be permitted only if they are infrequently traded on stock exchanges in India,” the circular said.

Going against expectations, the regulator decided to disallow automatic conversion of IDRs into UK StanC shares after one year of listing.

The IDRs plummeted by 20% in the initial trading hours before recovering to close at Rs94.6, witnessing a fall of 17.5%. Stan C shares in UK were trading at 1,599 pence (Rs1,173 per share).

“This was on account of the sell-off by speculators who bought the IDRs hoping to make a neat 8-10% arbitrage opportunity that exists between Indian IDR and UK share price of the bank,” said a source. “The move will, however, protect the interest of domestic investors.”

“In StanC IDR, the annualised turnover over for the last six months works out to 48.7%,” said Jagannadham Thunuguntla of SMC Global Securities.